Transcripts For BLOOMBERG Bloomberg Markets Middle East 20180122

Fourth term as chancellor as the social democrats vote to open Coalition Talks. In improving picture for emerging markets. Behin what isr tells us behind the outlook. This is Bloomberg Markets middle east. Inm yousef gamal eldin dubai. Global markets showing they are willing to take the u. S. Government shutdown in stride. Assets weaker with korea and japan driving losses. Australian shares unchanged. Advance on optimism for the euro. It is not a pop. It raises the question about the massive eurodollar positions out there. The dollar index pretty much unchanged, still close to a sixweek slide that shows no of relief in the shutdown. Up. 5 . Urrently we had commentary from the most par 4 Energy Ministers in the world and will get you those interviews in the program. Old lower the big move in the emerging market fx space has been the 12. 12 offd trade at the news that jacob zuma could leave earlier than planned and transition plo power in a you new administration. Lets check in on first word headlines and get out to debra mao. Opec and russias say they will maintain Oil Production curbs through 2018 and have hinted they are ready to cooperate beyond that. Russian Energy Minister told bloomberg that restrictions will stay until the market rebalances , although neither he or his saudi counterpart would confirm curbs will extend into 2019. We assume that corporation between our countries is longterm. Regardless of whether in terms , marketarkets stabilization or other areas. Our cooperation is based on agreements we signed in china, and the past 1. 5 years we have been implementing them, we have shown a lot of success. We had a successful run. Afghan Security Forces have ended the seizure of the intercontinental hotel, killing the last of six militants involved. 18 people died, including 14 foreigners. The taliban and says it carried out the attacks. The hotel is not part of the global chain. A new Bloomberg Survey suggest governor kuroda is a strong favorite to win a second term as governor of bank of japan. To said anye spoke choice except governor kuroda is likely to see the yen rise and stocks fall. The governor has been in charge since 2013, implementing an unprecedented stems program to kickstart the japanese economy. Germany social democrats have opened formal talks with chancellor merkel, seeing a resumption of the grand coalition and pave the way for a fourth term for the chancellor. Startare expected to tuesday, ending four months of political stalemate. Says anch president special postbrexit trade agreement between britain and the eu is possible. Speaking to the bbc, he suggested the Financial Services sector could be included if theresa may were prepared to give ground them about said Single Market access is not on the table. This special way should be consistent with the preservation of the Single Market and our interests. You should understand that you cannot define the condition is full access to the Single Market. Debra global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Am i amdebra mao debra mao. This is bloomberg. Yousef lets get back to our top story, the u. S. Government shutdown will continue into a third day after the Republican Leadership postponed a vote on funding until noon on monday. Mitch mcconnell says he intends to bring up immigration legislation next month if negotiators can work out a deal. Should these issues not be resolved by the time the funding bill before us expires on february 8, 2018, assuming that , itgovernment remains open would be my intention to proceed to legislation that would address daca, border security, and related issues. Lets get out to jodie snyder with the very latest. As they worked feverishly on trying to resolve this, where do things stand at this moment . They have adjourned. They were in for the weekend, trying to basically come up with some deal to get a vote before the workday effects of the shutdown would happen, but they could not do that. They will be in on monday, but there has not been a deal. They have been trying to resolve this by giving democrats some kind of separate vote on the issue of immigration and how to , restore deal with protections for the young, undocumented workers brought to the u. S. As children. That has not happened. There has been a lot of blaming back and forth, but no deal yet to come up with a spending plan. The republicans in the senate need democratic votes. They need 60 votes, and there are only 51 republicans. Out the blameint game, lots of fingerpointing underway, who is capturing the narrative at this point . How is the blame being apportioned . What stood out in those discussions . A little unclear. There is a lot of blame to go around so far. The white house and republicans controlled the majoritys and the white house majorities in both houses and the white house. Iscourse, the white house trying to change that narrative and blame the democrats, saying they are the ones because they have been pushing for this immigration vote. If they did not push so hard, the government would not be shut down. I think a lot of voters were blame everybody, and this is an election year, so this could hurt particular candidates. Yousef thank you for coming on the show. Some breaking lines hitting the bloomberg out of saudi arabia, the ongoing corruption probe. In terms of the breakdown, we understand settlements may top 100 billion as the probe nears its end. Let me break it down further. 95 suspects remain at the ritz. 90 suspects have agreed to settle. To the samerding source, which adds color to what we had found out from the finance minister in december, that we could see something in the vicinity of 100 billion, so a clear back line and background and outline on where that story is. Lets get you to the u. S. Government shutdown and bring in the head of Market Strategy now live from hong kong. We start off with asking you a simple question. A u. S. Administration that has stood out in the way it conducts policy, so should i not be worried the shutdown will be different than any other shutdown . Interesting thing is markets have been good at discounting the instability in u. S. Politics in the last year without generating too much volatility. I dont think there will be a lasting effect. We might see the market rally and applaud the fact that government is out of its way. The last three shutdowns have seen proequity returns hit the markets. When the government shuts down in the u. S. , equity markets seem to applaud it, and probably the same thing this time around. Terms of the possibility of donald trump ,oing in nuclear on the talks does that perhaps change the calculus of little bit further . If that happens, with that be the game changer . There is a lot on the table. Putting Nuclear Options makes fantastic headlines. The market is good at discounting u. S. Government instability. A long time since the discourse in washington has been civil and kind, and this is just another example of the u. S. Government distracting from what is happening in the u. S. Economy, which is it continues to accelerate and improve, and that is what investors look at. Whether they have a shortterm deal or longterm option, i dont think it will make a huge difference in the eyes of investors. Yousef it does make a difference in bond vigilantes circling the 10 year yield. We see that has a continues to trade close to record highs for the last few years, but in terms of where you see u. S. Tenure paper go from here, will this put more upside pressure on that . You have to take a market at 3 . We are almost there. That is a clean target. Something will derail it at this point given the growth we have seen in the u. S. , and the optimism around the u. S. Tax bill and the repatriation of capital that has stimulated businesses. I think that will continue to put pressure on the yield curve shifting higher has people think about inflation and the fed getting more proactive here it proactive. Yousef you are sticking around. We have a lot to talk about. Lets get you a preview. Opec and restaurant consisting they will preserve the output curve despite rising prices. We are live with the latest from the meeting. First, markets brace for taper talk with rate decisions from the boj and ecb. Will we get clues about the future of this cutie program . That is next. This is bloomberg. Yousef ms. Get you some action. Lets get you some market action. And upside in abu dhabi lower in saudi arabia. Qatar down. 6 . World, banks around the rate decisions due from boj and ecb. Investors on the lookout for more clues about the unwinding of the quantitative easing programs from both. Jittery amid speculation the boj is moving towards normalization. Many economists believe the ecb will announce and ending to asset purchases. Our guest is still with us from hong kong. We have gotten used to boj pressers largely uninteresting. This week, it will be difficult not to keep it boring. What are you looking out for . It is too premature to talk about a shift in policy. There has been some tweaking on the daily positioning, but i think that is housekeeping more than anything else. We expect the outlook report inl shift the growth inflation projections higher, but in terms of changing strategy, the market is getting way ahead of itself thinking there will be any announcement of a move towards normalization. Toernor kuroda is dedicated the Monetary Policy, and core to press is not moving the boj into any type of reaction. The market is searching for something because at some point there will have to be an unwind, but too early at this point. Yousef weve some added perspective on the bloomberg at 4968. We see the widening spreads posing a challenge for the boj, and arguably that will fit into the broader calculus when the boj sits down this week. To wet the ecbr may or may not announce. If you are not confident we will hear anything from the boj theht my eye instinct boj, and you dont expect anything from the ecb either. That is right. We believe the market is looking for a story to trade on. Central bankers are not in a position to do anything. The ecb is interesting because inflation has not push them to a position where they have to react. As we have the italian elections on march 4, the italians have not taken the austerity measures and lowered their debt to gdp ratio significantly. 130 . Gone up to higher Interest Rates in italy will crush the italian people and create a groundswell of populism that could push you delete further away from the eu, so it is Political Savvy to wait this one out and not provide significantly hawkish language and put together a more dovish meeting. Them needs between to contract specifically, and we think it will react in this case. Yousef there are a lot of description. N your i want to nail down some specific recommendations you are making to clients on how they can beat the market as it slowly normalizes Monetary Policy around the world. Last year worked out well for us. We were discounting shortterm volatility. We think the first half of 2018 will continue that. There will be headlines around trump, china, the middle east, but looking at highyield emergingmarket currencies, they will produce significant returns for fx traders. There will be shortterm spikes. The turkish lira was a perfect example today. Those will be times to take advantage and reload on emergingmarket currencies. Yousef good to see you this morning. He is the head of Market Strategy at swiss quote bank. We will be joined by lawrence cramer, a ratings officer at s P Global Ratings. We will break it down for you in minute detail. This is bloomberg. President ,mer french the french president Emmanuel Macron says a postbrexit trade agreement between the eu and britain is possible. He suggested the uks Financial Services could be included it theresa were prepared to give ground, but set for Single Market access is not on the table. This special way should be consistent with the preservation of the Single Market and our interests. You should understand that you cannot define this as full access to the Single Market. To get full access to the Single Market you need contributions to the budget and you have to accept the freedoms and you have to accept the jurisdictions. Hasef meanwhile, the euro strengthened after social democrats in germany open formal talks with chancellor merkel. For the resumption of the grand coalition paves the way for a fourth term for the chancellor and in four months of political stalemate. Lets bring in moritz kraemer. Good to have you back on the program. ,he latest lines out of germany if you had a fourmonth process to bring a government together, that would be credit negative. What struck you most about looking at the german process here . This is totally new for germany. We never had anything like this. Is explained by a wider trend, not only affecting germany, but most advanced economies, the Political Landscape is fragmenting. This is a challenge that will not go away. Seen we arewe have not there yet. Basically what the Party Congress of the social democrats agreed yesterday is that the Party Leadership is authorized to begin Coalition Talks with the cdu. If and when this Coalition Agreement will be found, the Party Membership of the social democrats will decide on whether they want to move forward, so another potential stumbling block. It was a cliffhanger yesterday. Change orat does not worried you about how this might impact german economic momentum or confidence and governance . It does not. The gap between the parties is narrow. They have their differences. In the domestic policy debate, there is exaggerated stress, but compared with other countries we follow around the globe, there ina huge consensus centrists germany. Whatever coalition emerges and whether there will be elections between what we have is a fairly predictable policy framework. Program orin this preCoalition Agreement is not revolutionary. I want to cross over to the brexit negotiations. Yourds the end of 2017, were convinced this was likely to be a harder brexit than a softer brexit. Issue, partlyig because it is not reversible. When Emmanuel Macron was shown on the screen, there is this principled approach by the european union. Basically you are a member of the Single Market or you are not. The cherry picking is not in the cards. There have been some observers that said that is what they said with greece, but this is different. Thathappened in greece is the e. U. Was trying to protect itself. Strategysurvival against the dominoes falling. A situation of relative leniency increase, the same rationale will lead to a relative and approach against the u. K. Postbrexit the world, there is a great fear the dominoes will fall in the longterm. Yousef would you say things are more favorable now than a couple of months ago . They look favorable in the sense that the first hurdle was taken. There are lots of caveats in terms of the first stage of ,greements related to ireland to the budgetary contribution for example. There are many question marks on those. The u. K. Made it clear that nothing is agreed until everything is agreed and now the hard part does begin about what is the post brexit world the two sides can agree on. On the uks side, there is still not a firm agreement on what that should be, and time is out. Y running i remain concerned that too much time has been spent on the preliminaries and we may not have enough time to hammer out consensus. Img writes the scope for knock on effects with the pound this week. You are sticking around. We have more to talk about. Here is what is coming up next. Opec and russia will preserve the Oil Output Curbs despite rising prices. We are live with the latest from the meeting. This is bloomberg. ,ousef a live shot in dubai sun is shining, clear skies, 90 minutes from the market open. 11 30 p. M. In new york. The bloomberg dollar index a little higher. Lets check in on first word headlines with debra mao. Debra u. S. Lawmakers attempting to into the Government Shutdown have adjourned without a deal. Senators from both parties have been discussing options that could extend to stop cap federal funding through february 8. They also blame each other for the impasse. The euro has strengthened after germany social democrats opened formal talks with angela merkel. Support for a resumption of the grand coalition pave the way for a fourth term for the chancellor. Coalition talks are expected to start tuesday, ending four months of political stalemate. Authorities expect to recover more than 100 billion in settlement deals with Corruption Suspects in the kingdom. A senior Government Official tells bloomberg that talks with those arrested are expected to wrap up by the end of the month. Deale failing to reach a will be referred to prosecutors. Fi near a deal to buy a drugmaker for more than 11 billion to add treatments for rare Blood Disorders to its portfolio. The wall street journal says the deal could be announced today would value the drugmaker at overa share, a 64 premium the friday Closing Price in new york. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am debra mao. This is bloomberg. Thank you. Im looking at brent crude slightly higher. Say they wills maintain production curbs through 2018 and hinted they are ready to cooperate deion that. The russian Energy Minister said restrictions will stay until the market rebalances, although neither he nor his counterpart would confirm curbs will extend into 2019. Corporation between our two countries is longterm. ,egardless of the markets market stabilization, or other areas. Our core operation is based on agreements we signed in china. Years we have1. 5 been implementing this, we have shown a lot of success. We had a successful run. Was Alexander Novak speaking to bloomberg. She joins us now from where that meeting took place. Why are they talking about 2019 already . Saudi oil minister open the floodgates and said he did not think the market would belly balanced rebalanced before 2018, 2019, could thehis talk of deal be extended into 2019. For opec and nonopec, it is status quo and they are looking at what happens to the deal after it expires at the end of this year. They said they are open to extending the cut, especially if we see stocks build. The main thing is the Saudi Oil Minister sitting down with the russian oil minister, his counterpart and cochair Alexander Novak, they gave a joint interview. We hear sometimes when they meet that they drive in the same car. They want to continue to cooperate in terms of rebalancing the market. Take a listen to what he had to say. We need to have enough producers ready to intervene at the appropriate time to adjust production, to deal with fundamentals and market shocks. In the old days, opec. Today, we are approaching 100 Million Barrels a day of oil demand. So, so we dont feel opec alone can do it. That is why we waited until we had enough nonopec countries led by russia to come together in late 2016 and announce the declaration of cooperation that started in january 2017. Line, sayinge main opec alone can not do it, sitting with Alexander Novak. Looks like the relationship will continue beyond 2018. Market the voices in the are going to take a lot from that iea report on friday. What were the Key Takeaways . They understand and have read the report. Sayingow what people are about them and what is happening in the market, but he made it clear i am not concerned at all about shale. He sang you need to look at the net picture. Offset the need to decline in shale with venezuela, mexico, canada. He says he is not worried about shale at all. The report says they are seeing explosive growth in the u. S. , but he says take it with a grain of salt. Yousef thank you for that. Lets widen out the conversation and bring in our guest. As you heard the latest updates come at you look at where brent is close to 70 a barrel. Where do you see price action going for oil . This makes a difference in your Credit Ratings . It does. We currently have a lower assumption then what the prices for the year. 10 lower. Manyll have to see how legs this Oil Price Surge has. What we just heard said the key producers are willing to let it run. For gives good news items export countries, especially those with budgetary pressures them a which is pretty much everyone except kuwait and the uae, and abu dhabi. All the others would be helped in their quest to bring the budget back to balance. It is basically an melting away of assets that accumulated in the good years, and is by definition is not a sustainable strategy. Just heard those two people on what theyre doing with their production, saudi arabia and russian Oil Production over the last year. Where do you see it going, lower . We still have a lower forecast. It needs to be caution that the latest development seems to suggest with the potential Geopolitical Uncertainty that the Oil Price May remain at elevated levels. What is important, no different than other parts of the world, once the pressure goes away, the desire to reform and modernize the economy does not go away with it. Once the pressure disappears or is mitigated, some of those decisions may be shelved forever. Yousef its not necessarily a net positive for Gulf Oil Producers because it is a disincentive to reform . It is a positive, but the result will be tested. Look at what happened elsewhere and what we are seeing in the eurozone, which is a totally different economy, but once the of the crisis was over, so had the reform momentum. In the long term, it will not price, but resilient economies that determine the fate of the nation. Breakinge had some lines from saudi arabia saying they were bringing out details about who was involved in the numbers. In terms of what that says, because investors have been concerned about the transparency of the corruption probe and what that says about the reform process. Do you have any thought about that at all . Saudi reform process is a watershed moment for the nation. There is lots of potential. It could create a more resilient economy, a more diversified economy. This will remain a hydrocarbon denominated economy. The institutional framework has been relatively weak in an international context, so he is trying to great more transparency. This Corruption Purge part of this transparency drive is happening in a pretty in transparent way. It remains to be seen whether and is a process principlesdriven approach, or a more ad hoc phenomenon. Spiritsthe investment will be determined more by whether saudi arabia makes a move towards more transparent and predictable institutions. This could be a step in the right direction, but also more arbitrary ruling. What we had before was this web of checks and balances that led to stagnation. Now there is more freedom to move for the leadership, but with that also comes the risk of mistakes. Andef i look at your board qatar stands out as well. You say it will be a theme in 2018. You dont see the gulf crisis going away soon. You spend time with key decisionmakers. Is it here to stay . It does not look like it is going away. I cannot discern much progress here. What i also dont see is international attempts to bring the warring parties together. Inhink kuwait is resigning this role, the u. S. Is not taking it up, so it is hard to see unless one of the sides backs down entirely and the resolution of the qatar could come from. Higher Oil Prices May make this geopolitical tension more sustainable because people can get away with it longer. Yousef we still have quite a bit to talk about. You are staying with us. Lets get you an idea of what is coming up, s P Global Ratings put out a report on why things are looking brighter in emerging markets. We will get some of the key calls for you. Dont go away. This is bloomberg. Yousef this is Bloomberg Markets middle east. We are live on bloomberg tv and radio. I am yousef gamal eldin in dubai. Banksng markets, central normalize rates, questions about not on effects for emerging markets. Rating says the balance between negative and positive outlooks on the top 20 emerging markets has markedly improved. With us again is our guest. The to build up on some of highlights and some of the bigger stories out of that report. Late last year, you had concerns about credit growth in china. Where does that currently sit . By theu been convinced authorities they are doing sufficient work to address those weaknesses . Not let. We have lowered the rating on china. Concernson the back of for Financial Stability down the boom, which credit if you look at it, it is the largest and financial history in absolute terms it is slowing down. They have been trying to slow it down. My hope and expectation has been after president xi jinping gets his new mandate as enthroned to a more powerful position that they would step up the measures. This balancing act between growth on the one side and stability on the other, so i think we have not seen that clear sign they want to ring growth done more quickly to a sustainable levels, so what is true is that credit growth has been declining, but still growing. People still convolute that and say credit is going down, no, it is the rate of growth going down. The overall ratio of indebtedness continues to inch upwards. Conclusion from your report, if you had to pin it down to a few sentences, would be emergingmarket resilience for the most part in a wave of normalizing rates for now . Mostly, mostly, there are lots of shades of gray. About all this talk many of those fragile fives, like brazil, which does not have an external Pressure Point to speak of, they have views that time in between to improve their defenses, so the external vulnerabilities to rising global Interest Rates has been reduced in many cases, others it has not. There is this wide gulf between those that have little to fear, basically countries with a high ,avings rate, mostly in asia and those depend a lot on capital inflows, and therefore when those capital inflows become less affordable going ,orward, just more expensive the central bank normalizes rates, they will have many more challenges at hand, and number one is turkey them at which depends on capital inflows more than any other large emerging market. Yousef how does africa fit into the broader equation. Who is in a better position, especially egypt with the reform process. Egypt depends critically from capital from abroad. What we have now and what has isroved recently, and that why we have a positive outlook on the rating of egypt, is the Reform Program seems to get more traction and is supported by the imf has a credibility anchor, if you like, but those funds still need to come in. There are still in deficits to be funded. There is a huge government deficit to be funded, so we are still in the early stages of a longterm Reform Program. The pot ofypt is in those countries that have potentially more risks. Much of egypts debt is domestically funded to the banking system, but if there is a risk of crisis or loss of confidence yousef very briefly. We could have downside on the Credit Ratings from competitors when it comes to south africa. Your view on south africa has not changed . Thats right. We lowered the investment to a noninvestment grade last year. Yousef there has been positive momentum in the story. Maybe there is upside . May become a yes, but nothing has happened. Leadership selection of the anc candidate, which will likely become president , but we are still far away from having a clear outline on what policy will be. This is not black or white. Needs to bring the various factions into government, so we will wait for that. Yousef we still have one more key theme to talk about. The next segment. Here is what we will talk about, the u. S. Shutdown heading for a taking it inrkets stride come about what will be the implications for the u. S. Economy and futures . We will discuss that next. This is bloomberg. Yousef Government Shutdown will enter a third day after senators failed to reach an agreement to end the funding impasse, meaning agencies and services will be closed when the working week begins. The senate will vote monday to provide temporary funding to february 8. Our guest is still with us. Should we be concerned about this Government Shutdown, or is this more rhetoric, flash in the pan . This is not surprising. We have seen an increasing polarization of the political spectrum in the u. S. Inn we lowered the rating 2011, it was a big move. This was exactly on our back of the reassessment that we think the Political Institutions in the United States are such that timely, effective policymaking is more questionable than what you would see in other aaa rated sovereigns. This is another reincarnation of that. It looks like the parties want dont giveing, but it to each other. The same thing happen in 2011 when we were close to a technical default over the debt ceiling debate. Expression ofr structural features of the political system in the United States, which has become polar, antagonistic, making it harder to find crossparty solutions. Both want the same thing, so i think it will be resolved, but there will be attempts to be in as much blame as possible on the other side and increase the pain on the way. Elections are coming up which are quite important. Yousef where does that leave the fed . You have u. S. Tax cuts, the government standoff, the inflation not where it needs to be. What is your outlook . This is a shortterm phenomenon, the shutdown. I dont think it will do too much to the economy, so the feds position should not change because of that. , soy day there is a loss this is a slight dampener on the growth outlook. On, it might influence the feds tightening cycle going forward, but right now we dont think this will affect it. What we can expect is that if ,nything, earnings being equal the tax reform having been passed him a will probably stimulate the economy shortterm and give initial of to rate rises this year. Been caughthave surprised a little bit with the sixweek slide in the u. S. Dollar. A lot of traders saying there is no fundamental justification for it. It is old news, but when you have tax reform, there are still concerns about congress and the republican party, on what this does to the deficit longterm and what this does to debt supply longterm. If you look at other parts of the world, you had good news items that of europe, for example, so these are the ups and downs. I dont think this changes things much from the credit side come especially since the u. S. Is only borrowing in its own currency anyway. Yousef thank you for running us through the key ideas in global markets. S P Global Ratings chief sovereign ratings officer. Some of the themes you should keep in mind, talks to resolve the dispute the between of 700 million of securities have broken down as the Company Proposed a 15 haircut on that debt. You can see how dan a gas has performed. Dana gas. Also keep an eye on him are properties. Emaar properties. Coming up as well in terms of yearlobal picture, we have old area finance ministers meeting in brussels to discuss imfgreek bailout, also an World Economic outlook update that will give us more on the Global Economic policy. We also have the brexit bill that goes to the u. K. House of lords. Issuing worldbe oil exports and output data, giving traders something to think about along with other data. Also, its earnings season around the world. Ubs will be putting out their numbers. Wealth management in focus on that front. Johnson and novartis as well. That is all we have for this edition of a jampacked Bloomberg Markets middle east. 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